Weak rupee makes gold smuggling, bets attractive

September 15, 2012

New Delhi, September 15: When 26-year-old Abdul Salam from Dubai was arrested at Mumbai airport last month with 156 gold chains concealed in his shoes, he was trying to land an irresistible windfall. Gold prices are rising faster in India than overseas. And this has brought back a profit opportunity, legal, not-quite-legal and illegal.

Gold arbitrage is promising punters as much as 12% annual return on investment. For some, it's almost Haji Mastan time again. But here's a difference - the infamous gold smuggler arbitraged on government ban on gold imports, today's shadier punters rely on the rupee's weakness against the dollar and the impact a weak rupee has on local gold prices.

There has been a 10-fold increase in the number of gold smuggling cases in recent months. Between April and June this year, authorities impounded gold worth 940 crore in some 200 cases of smuggling, up 272% over the same period last year, finance ministry data shows.

Smugglers make money if they can successfully avoid paying duties - 4% customs duty and other taxes, which add 5%-plus to the landed cost of gold.

Arbitraging on gold in less risky ways is possible - but complicated. The incentives, for all kinds of punters, is however simple to understand.

Take this price comparison. On September 10, 2011, the spot London price was $1,857/ounce. The price on MCX in Mumbai was 28,152/10 gms. On September 10, 2012, the spot London price was $1,736. The price on MCX was 32,035. In other words, while gold overseas dropped 6.5% in last one year, gold on MCX has risen almost 14%.

Why? Last September, the dollar was trading at 46.48. Now, the exchange rate is 55.36. It's this near- 20% depreciation of the rupee that has pushed up local gold prices.

The thumb rule is that every one rupee rise or fall in the exchange rate leads to a movement of 500-550 per 10 gm in the same direction on MCX. Since the rupee is expected to further weaken against the dollar as companies scramble to pay back overseas loans in the next couple of months, gold's faster rise in India is virtually guaranteed for the rest of the year.

"Normally international gold prices rise on the back of a weakening dollar. Currently, while the dollar's weakness continues to push up gold, the dollar has strengthened against the rupee. That is why Indian prices are higher than the world market. It is a pure currency play," says analyst Thiagarajan Gnanasekar at CommTrendz Research and Fund Management.

How does a canny investor - assuming he's not keen on smuggling - take advantage of this currency play?

When gold lands legally in India, it attracts taxes that add up to more than 5% (4% customs duty and local taxes). After paying that duty, there's no real possibility of arbitrage. That's why NRIs, allowed to legally import 1 kg gold per head, can't play the local market.

Theoretically, an Indian investor can buy a gold contract on New York Mercantile Exchange's Comex division, hedge the rupee against the dollar, and sell an equivalent contract on the MCX, says Ashok Mittal, CEO, Emkay Commotrade, a brokerage.

This can be a high risk strategy. You have to pay some cash upfront as margin money in both MCX and Comex along with the brokerage fees. There is the cost of hedging the rupee against the dollar.

gold


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News Network
June 3,2020

Jammu, Jun 3: A mob on Tuesday disrupted the last rites of a coronavirus victim in Jammu and Kashmir and forced his family members to flee with the half-burnt body, prompting intervention by the administration which later ensured the cremation at another place as per protocol.

A 72-year-old man, hailing from Doda district, became the fourth victim of the novel coronavirus to die in Jammu region. He breathed his last at the Government Medical College (GMC) hospital on Monday.

"We had set out for the funeral along with a revenue official and a medical team, and had lit the pyre at a cremation ground in Domana area when a large group of local residents appeared at the scene and disrupted the last rites," son of the deceased said.

Only close relatives of the deceased, including his wife and two sons, were present during the cremation. They had to flee with the half-burnt body in an ambulance to save their skin from the mob which pelted stones and attacked them with sticks.

"We had sought permission from the government to take the body to our home district for the last rites, but we were told that all necessary arrangements were in place, and that we would not face any trouble during the cremation," the victim's son said.

He also alleged that the security officials present at the scene were of no help.

Two policemen who were present there failed to act against the unruly crowd, while the accompanying revenue official went missing, he said.

"The ambulance driver and other staff from the hospital helped us a lot and managed to take us back to the GMC hospital with the body the government should have come out with a better plan to conduct the last rites of coronavirus victims, taking into consideration the past experience and problems encountered during the funeral of such victims," the victim's son said.

Later, the body was taken to a cremation ground at Bhagwati Nagar area of the city, where it was consigned to flames in the afternoon in presence of senior civil officials, including additional deputy commissioner and sub-divisional magistrate under tight security.

"My uncle was admitted in the hospital last week and died on Monday afternoon. He was suffering from various ailments, especially lungs and heart diseases. Before shifting him to GMC hospital Jammu, he underwent a coronavirus test in Doda which came negative," nephew of the deceased said.

However, he said, the victim's second test after his admission in the GMC hospital came positive on Sunday.

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News Network
April 19,2020

New Delhi, Apr 19: The government on Sunday prohibited the sale of non-essential items through e-commerce platforms during the ongoing lockdown, four days after allowing such companies to sale mobile phones, refrigerators and ready-made garments.

Union Home Secretary Ajay Bhalla issued an order excluding the non-essential items from sale by the e-commerce companies from the consolidated revised guidelines, which listed the exemption given to the services and people from the purview of the lockdown.

The order said the following clause "E-commerce companies. Vehicles used by e-commerce operators will be allowed to ply with necessary permissions" is excluded from the guidelines.

The previous order had said such items were allowed for sale through e-commerce platforms from April 20.

However, the reason for reversing the order is not known immediately.

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Agencies
February 11,2020

New Delhi, Feb 11: AAP chief and Delhi Chief Minister Arvind Kejriwal has won from New Delhi assembly seat. He polled 46,758 votes, which is 61.1 per cent of total votes polled in the high profile constituency.

Kejriwal defeated Sunil Kumar Yadav of the Bharatiya Janata Party (BJP), who polled 25,061 votes, which is 32.75 per cent of total votes polled. Congress candidate Romesh Sabhawarl could get only 3,220 votes.

So far, the AAP has won 55 seats and is leading on seven seats. The BJP has won seven seats and is leading on two. The Congress is nowhere in the reckoning.

As per the details on the website of Election Commission of India at 8.27 pm on Tuesday, the AAP has secured 53.60 per cent votes, BJP 38.49 per cent, BSP 0.71 per cent, CPI 0.02 per cent, CPI-M 0.01 per cent, Congress 4.27 per cent, JDU 0.90 per cent, LJP 0.35 per cent, NCP 0.02 per cent, and NOTA 0.46 per cent.

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